Dylan Ratigan: Does The Wall Street Fraud Extend Beyond Goldman Sachs?

Dylan Ratigan talks to Simon Johnson and The New York Times' Gretchen Morgenson about whether the fraud on Wall Street extends far beyond Goldman Sachs and whether we're going to see more suits from the SEC.

You can read Simon Johnson's latest post at The Baseline Scenario on why we need to Break up the Banks here:

The biggest banks in the United States have become too big – from a social perspective. There are obviously private benefits to running banks with between $1 trillion and $2.5 trillion in total assets (as reflected in today’s earnings report), but there are three major social costs that the case of Goldman Sachs now makes quite clear.

1) The megabanks have little incentive to behave well, in terms of obeying the law. There is fraud at the heart of Wall Street, but these banks have deep pockets and suing them is a daunting task – as the SEC is about to find out. The complexity of their transactions serves as an effective shield; good luck explaining to a jury exactly how fraud was perpetrated. These banks have powerful friends in high places – including President Obama who still apparently thinks Lloyd Blankfein is a “savvy businessman”; and Treasury Secretary Geithner, who is ever deferential.

2) The people who run big banks brutally crush regular people and their families on a routine basis. You can see this in two dimensions

A. They are not inclined to treat their customers properly. They have market power in particular segments (e.g., new issues or specific over-the-counter derivatives) and there are significant barriers to entry, so while behaving badly undermines the value of the franchise, it does not destroy the business. Talk to some Goldman customers (off-the-record; they don’t want to bite the hand that hurts them). Lloyd Blankfein still claims that the client comes first for Goldman; most of their clients are surprised to hear that. Read on...

And you can read Gretchen Morgenson's posts at the NYT's here.

It was nice to see the talking point that if these mega-banks were broken up it would make us less competitive and harm employment in the United States. As both Johnson and Morgenson noted the big banks are not loaning to small businesses and breaking them up would actually improve that situation. Simon Johnson pointed out how these large institutions are hurting the rest of the American business sector.

This problem should have been addressed right after the Wall Street meltdown. I still can't believe it's taking this long for our politicians to finally look like they're willing to do anything at all about it. Pitiful. Pitiful and inexcusable. I don't want to be repeating a Republican talking point, but I honestly think this should have been priority one, before the health care debate. The Democrats frittered away the time frame where the public would have been clamoring on their side and the Republicans would have had a harder time acting the way they are now. They also have allowed our financial system to sit at risk for all this time with nothing being done about it.

I would love for someone in the Democratic leadership explain why they weren't pushing this through at the same time or before the health care bill and why it's taken this long to finally be voting on what's come out of Dodd's committee.


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